The Securities and Exchange Commission (SEC) Marketing Rule (Rule 206(4)-1) became effective in 2022. This rule modernized advertising for investment advisors by replacing old rules, banning untrue statements and misleading info, mandating fair presentation, and requiring disclosures for testimonials/third-party ratings, all aimed at promoting investor protection through clearer, substantiated marketing.
However, the Marketing Rule left some questions in the minds of practitioners. To help clarify the Marketing Rule, the SEC’s Division of Investment Management has been releasing FAQs. These FAQs represent the views of the Division’s staff; they are not a rule, regulation, or statement of the SEC. But they are helpful in providing guidance to practitioners.
New FAQ Issued on January 15, 2026
On January 15, 2026, the SEC issued an FAQ on the use of model fees. The question is whether an investment advisor would violate the general prohibitions of the Marketing Rule by advertising the net performance of a portfolio that reflects the deduction of actual fees charged to the portfolio, when the fees to be charged to the advertisement’s intended audience are anticipated to be higher than the actual fees charged.
The FAQ notes that the Marketing Rule defines “net performance” as:
- A portfolio’s performance after the deduction of all fees and expenses actually paid by a client or investor, and
- The portfolio’s performance after the deduction of a model fee, subject to certain conditions.
The FAQ further notes that footnote 590 of the Marketing Rule provides that “if the fee to be charged to the intended audience is anticipated to be higher than the actual fees charged, the advisor must use a model fee that reflects the anticipated fee to be charged in order to not violate the rules general prohibitions.”
Key Takeaway for Investment Advisors
The takeaway here isn’t that model fees are always required, but rather that either actual or model fees can be used when presenting net performance as long as the fees are appropriate for the intended audience.
We observe that there is another FAQ relating to net performance. This, in essence, indicates that gross and net performance shown in an advertisement must always be calculated using the same methodology and over the same time period.
Ready to Navigate the Marketing Rule with Confidence? We’re Here to Help
The SEC’s Marketing Rule continues to evolve and staying compliant while presenting your firm’s performance effectively can be challenging. If you have any questions or would like to discuss the practical application of the Marketing Rule, please contact Thomas A. Peters at tpeters@kmco.com or 215.441.4600.